Two Common Ways to Handle Employee Travel Expenses
One of the trickiest internal control processes for accounting departments to manage is employee travel expense reimbursements. For most organizations, there are two options for reimbursement. Each have their own set of pros and cons.
- Per Diem
Per Diem is typically a set amount of cash that an employee can use for lodging, meals and other travel expenses. As long as the employee does not spend more than their allotted amount, they do not have to submit an expense report. In addition, if they have money leftover, they are allowed to keep this for themselves.
While this approach saves your accounting team some time because they do not have to match receipts to charges, there is still some work involved prior to each trip. Per diem amounts are determined by the IRS and can vary by destination. It is important to document these varying rates and notify employees of these rates before their travel begins.
- Expense Reports
Employees can use their company credit card to make purchases and submit the receipts to your accountant through an expense report. Depending on your company’s internal policy, SST Accountants & Consultants recommends setting an expense limit through written communication prior to the start of the trip. This expense limit should remain consistent across the entire company. If you choose to update the limit, be sure to reflect that change in your handbook under a ‘travel policy.’
While this method is more common than per diem, some employees can take advantage of the policy and over-spend. To prevent employees from going over the expected amount, we recommend requiring employees to submit an itemized receipt, along with an explanation of the business purpose of each item and a list of who was in attendance for each meal.
While there is no true ‘right’ or ‘wrong’ answer as to which policy is better, it is important to choose a policy that works best for your organization, its employees and your accounting team. Once you choose a policy, stay consistent with it so that employees can easily follow the set protocol.
